By Clay Elliott, CFP®, AAMS®, CRPC®

No matter your retirement plan, how and when you take pension distributions is significant. Generally, you’ll have to pay taxes on your distribution, and you may have to pay a penalty if you’re younger than 59½.

Private employers, like Exxon and Dow, often have one or both of two types of pension plans: a defined benefit plan and a defined contribution plan. It is also worth noting that many companies are doing away with pension plans because of their costs and going with a higher 401(k) match or other company benefits to supplement. Check with your company to see if you are eligible for pension benefits.

The defined benefit is the traditional pension, funded by an employer to pay a guaranteed amount in your retirement. You fund a defined contribution plan yourself, and your employer will often match a certain percentage. The payout depends on how well the investments in your plan perform.

Rules governing retirement accounts are complex, so consider consulting a financial professional at Oak Capital Financial Advisors to plan your pension distributions.

Pension Eligibility and Vesting

It pays to know the eligibility and vesting guidelines of your company’s retirement plans.

There are numerous criteria for who can participate in defined benefit plans (pension plans) at Dow and Exxon. Generally, it depends on:

• Your hire date
• Your classification as an employee
• If you’ve worked 1,000 hours within the 12-month plan year
• … and more

Both companies offer assistance from human resources to help employees determine the pension plan(s) they might be eligible for and when they’re vested (usually after three or five years of service).

For your 401(k), you’re vested for the company match after three years or when you turn 65 at Exxon. Your contributions are 100% vested immediately. With Dow, you’re vested immediately on both company and employee contributions.

Please review Summary Plan Description for more information on your company plan.

Options for Pension Distributions

With a traditional pension, you often have the option of a lump sum or monthly payments. Which you choose may depend on your spending, saving, and investing habits, and whether you’re married.

There also are tax considerations to be aware of. You’ll pay taxes on certain distribution elections. Your employer must withhold 20% if you take a lump-sum withdrawal if you don’t roll the funds to a traditional IRA, and you can be taxed another 10% as a penalty if you take the distribution before age 59½. Taking a lump-sum election and rolling the funds to a traditional IRA continues to defer taxes until withdrawals are made.

Tailored Strategies

If you work in a plant, exposure to chemicals or repetitive motions might lead you to consider retiring early. A strategy tailored to your situation can help you make the most of your pension distributions and promote financial stability.

Such a strategy would include minimizing your tax liability while maximizing tax credits and deductions—mileage, tools and equipment, work clothes and equipment, etc.—that might be available to you.

Other Factors

When you decide to start taking pension distributions is a major factor. The number of years you’ve worked and the age at which you take your payout can impact your distributions.

You also must consider your spouse. What happens if you pass away? Depending on your classification, a traditional pension might pay out half your benefit for a lifetime or a death benefit, which is a higher amount. You could also name a beneficiary and have it paid as a lump sum.

Choose Wisely

As a plant worker, you have different needs than other company employees. Take full advantage of your retirement benefits—working closely with a financial professional can put you on a path to getting the most out of your pension distributions later.

Once you retire, your decision can’t be reversed, so consider your health, how long you might live, and your loved ones’ future if you pass. A monthly payment might work best in some situations, while a lump sum you can roll into an IRA might be better to fund big purchases, vacations, or an inheritance.

Work With a Financial Advisor for Pension Distributions

The time to plan for your pension is now, not when you’re about to retire. As Baton Rouge locals, the Oak Capital Financial Advisors team specializes in serving high-net worth individuals who are plant workers, small business owners, and executives. With offices in Port Allen and Baton Rouge, LA, we’re available to service your financial planning needs as a financial advisor who’s familiar with circumstances like yours.

To learn more about how to incorporate your pension distributions into your big-picture financial plan, schedule a meeting, call 225-416-7373, or email [email protected].

About Clay

Clay Elliott is Owner and Principal Financial Advisor at Oak Capital Financial Partners, a financial services firm based in Port Allen, LA, dedicated to providing local financial advice held to the highest standards. Since becoming a financial advisor in 2016, Clay prides himself on working toward his clients’ best interests as a fiduciary. He provides comprehensive financial planning and educates his clients to develop robust wealth management strategies to help them pursue their financial goals. He loves helping people become financially independent and enjoys seeing them live out their financial plan successfully.
Clay holds a bachelor’s degree in marketing from Louisiana State University as well as the CERTIFIED FINANCIAL PLANNER™ designation. He is also an Accredited Asset Management Specialist and a Chartered Retirement Planning Counselor.

Outside of work, Clay enjoys spending time with his wife, Claire, and daughter, Camille, playing tennis, fishing, and attending LSU sporting events. An active participant in his community, Clay is involved with The Emerge Foundation Center for Autism, the West Baton Rouge Chamber as an ambassador and member of the Governmental Affairs Committee, is a board member for the Louisiana Chapter of the Financial Planning Association and West Baton Rouge Small Business Council, and a member of Port Allen Rotary Club. He was also named Young Professional of the Year by the West Baton Rouge Chamber of Commerce. To learn more about Clay, connect with him on LinkedIn.